Gro Intelligence’s data platform of surveyed and remotely sensed sources is an invaluable resource for commodity market participants. Ahead of the Friday, Jan. 10, release of the most important WASDE of the year, we provide a toolkit for how Gro’s platform can be used by traders and analysts to prepare for this and any market-moving report.
With Gro’s API client, users can calculate average price movements on report days to predetermine risk of trading positions. In addition, users can tell which crop/country pairs are likely to change in an upcoming report, and by how much. Finally, Gro’s data can be used to develop predictive models for specific balance sheet line items, such as US exports.
A previous Gro analysis found that the January release of the USDA’s World Agricultural Supply and Demand Estimates is the biggest market-moving WASDE report of the year. The January WASDE is often considered the final US crop estimate of the season, incorporating annual Crop Production forecasts by state and the quarterly Grain Stocks report. With the final numbers for last year in hand, analysts can hone their forecasts and begin to project supply/demand balances for the coming season.
As another application to prepare for the upcoming WASDE, we quantify which country/crop pairing estimates are most likely to be revised in the report. (See chart at the bottom of this article.) The analysis looked back over 11 years of WASDE reports (excluding January 2019, which was not released because of the US government shutdown) to assess how many times data for each country/crop pairing was revised between December and January in each year.
US crops feature heavily among the most revised data series in January WASDE reports. US corn and soybean production, consumption, and exports are almost always revised between December and January. In this year’s report, the market will be especially focused on the revisions to harvested area, given the prevalence of flooding and failed plantings that occurred in the US Midwest in the spring of 2019.
In South America, soybean balances in Brazil and Argentina are frequently revised in the January WASDE as planting is wrapping up and analysts have a better idea of crop development.
On the demand side of the balance sheet, weekly data on export sales and ethanol production along with monthly crush statistics often result in forecast revisions. The quarterly Grain Stocks report sheds some light on the final pieces of the balance sheet and will similarly be used to adjust the forecast.
Gro’s analysis of the likely demand adjustments in this week’s WASDE report uses the marketing-year-to-date pace of export sales commitments from USDA ESR to estimate annual export demand. We also use ethanol production reported by EIA to predict annual corn use for ethanol.
Our calculations show that exports for corn, soybeans, and wheat should all be revised lower in the January WASDE. Corn exports are on pace for 1.4 billion bushels in the current marketing year, down 450 million bushels from the December WASDE estimate. Corn demand for ethanol, on the other hand, is currently estimated at 5.437 billion bushels, 62 million bushels ahead of the last WASDE.
Soybean exports are also running well behind normal, currently on pace for 1.487 billion bushels versus 1.775 billion bushels forecast in December. Wheat exports are projected to be revised down slightly to 957 million bushels from 975 million.
The methodologies outlined here can be applied to all other data sources in Gro that have a known release history. Users can also analyze the magnitude of revisions for a given reporting period to get a better sense of what the changes with the biggest impacts will be.